BY: Daniel M. Savage
The decision to retire is one of the most important decisions, financial or otherwise, you will ever make. It will have a profound impact on the final 15–30 years of your life, with, unfortunately, limited opportunity for correction should you choose poorly.
Will you be ready? How can you be sure? By carefully and honestly considering the following five questions, you will move a step closer to knowing whether you are on track … or not.
1. Are your projected retirement income and asset levels in sync with anticipated expenses? Too many prospective retirees focus exclusively on the former while completely ignoring the latter. Retirement expenses fall into three basic categories: Needs (or Must-Haves), Wants, and Dreams.
At minimum, comfortable retirement means that all needs must be met with something left over for wants and perhaps a few dreams. In simplest terms, a sustainable income of $75,000 will not support annual expenses of $100,000 over the long-term.
2. How will you provide for adequate healthcare coverage, including long-term care? Given longer average life expectancies, healthcare expenses figure prominently in our futures. While Medicare generously covers many of these expenses, quality supplemental and drug coverage is a must.
In addition, long-term disability is an ever-looming threat that can quickly and significantly undermine an otherwise perfect retirement plan, so it is extremely important for your plan to address it. Some statistics tell us that long-term disability is three or four times more likely than death for the average person. Be sure to explore the possibility of long-term care coverage.
3. What is your anticipated life expectancy? Although no one knows for sure, family history, occupation, your personal medical history, and lifestyle offer valuable clues. Did your parents and their siblings live well into their eighties and beyond, or did they struggle to make sixty or seventy? Have you been healthy due to long-term healthy diet and regular exercise? Does your occupation place you in potential contact with toxic substances or other stressors?
Regardless, your plan should anticipate a long life. Few things are worse than living into your nineties having exhausted your assets by your early eighties. We typically advise clients to build their plans around a 90-plus-year life expectancy.
4. Have you shock-tested your retirement plan? Most retirement plans assume and are built around ‘averages’: average inflation, average markets, average economic growth, average life expectancy, average health outcomes, and so forth. However, life occasionally throws a curve with better or worse than average developments.
Hope for the best, but plan for the worst’ is a quote attributed to many people, but its wisdom is relevant to retirement planning. Things can quickly go very wrong. COVID and 9/11 are recent examples. So…one important goal for your retirement plan should be to survive so-called ‘worst-case’ scenarios.
5. Have you considered retirement’s impact on your purpose, structure, station, and social interactions? A satisfactory retirement is about more than comfortably satisfying needs and wants. It also considers why we get up every morning, where we fit with circumstances and people around us, how we handle newly-found freedoms, and the quality and sufficiency of our interactions with family and friends. Money can, in fact, provide a healthy down payment on happiness, but the above-referenced factors are necessary to complete this important purchase.
If you can satisfactorily answer these five questions, there is a reasonably good chance that you will experience a fulfilling retirement. To further increase your odds of success, we encourage you to enlist the assistance of a seasoned Retirement Planning Professional.